We arranged for 82 General Psychology students (51 females, 31 males) to observe peers in a course cheating situation. Individual, in-depth, qualitative interviews following the experiment we were conducting, using rigorous coding and grounded theory methodology for analysis. Results showed students to experience particular cognitive stages as they processed what they observed. These include recognition, reaction, rationalization, realization, and resolution. Students reported generally progressing through these stages as they wrestled through the difficult experience and the cognitions they underwent up until the time of debriefing.